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Sample Quiz 3 - Version Fin 536 Sample Quiz...

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Version Fin 536 Sample Quiz Name____________________Section_4pm/7pm Note: You must review all potential topics for the quiz. This sample quiz does not cover all testable topics. 1. Fill out the answers. a. (PPP forecast)Assume that the inflations rates in Japan and in the U.S. are forecasted to be 1% and 3% respectively, if the current spot rate is ¥90/$, then the forecast of the exchange rate is ¥______________in a year. b. (Forecast by the UIRP) The interest rate is 1% in the U.S. and 7% in Australia. Based on the UIRP, we expect the Australian dollar to ______________ (depreciate/appreciate) ______________% in the next year. c. In Jan 2006, the Argentine peso was trading at Peso3.00/$ and the inflation rate was expected to be 12% per year. At the same time the U.S. was expected to have 3% inflation rate. If PPP held, we would expect the exchange rate to be Peso______________$ in Jan 2007. In fact, the Argentine peso rate was Peso2.8/$ in Jan 2007. We conclude that the peso was______________ (over-valued/under-valued) compared to the PPP exchange rate in Jan 2007.
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